1 Introduction

Facing an anticipated federal deficit of $53.8 billion in 2009–2010, and recognizing
that the public service workforce was the largest since the 1990s,1 the
Government of Canada announced in Budget 2010 that, for the fiscal years 2011–2012
and 2012–2013, the operating budgets for all departments would be frozen at the
2010–2011 level.

The last time the government faced a similar deficit it implemented a wide
cost-cutting and cost-saving Program Review exercise. This paper will discuss
the Program Review in the 1990s, the public service reductions that it brought
about, and its effects on different aspects of the public service. It will then
examine lessons learned with respect to the management of the public service
that the present government could examine with a view to reducing the deficit.

2 Program Review – 1994–1999

In the fall of 1993, Canada was facing a $38.5 billion deficit and a total
accumulated debt of $487.5 billion.2 The
service charges on this debt accounted for 25.9% of all federal expenditures.3 The federal government launched a number of reviews with the aim of reining in
the deficit. One of these was Program Review, which consisted of a review of
all non-statutory spending on programs4 and
a re-examination of the federal government’s role in delivering these programs.
The government instructed ministers and senior officials to submit the programs
and activities for which they were responsible to a series of policy tests. This
process allowed the government to determine which activities it could continue
to deliver or support within a much-reduced budget. It also identified the activities
it would have to discontinue, scale back, devolve, or deliver or finance differently.

In Budget 1995, the minister of Finance announced that Program Review would
result in some $17 billion in expenditure reductions over three years and that
the public service would be reduced by some 45,000 positions.5 In
Budget 1996, the minister of Finance launched Program Review Phase II, which
was expected to result in further expenditure reductions of some $2 billion by
1998–1999 and in the elimination of as many as 10,000 additional jobs. In 1997,
the government announced that the public service had declined from 225,619 workers
at the beginning of April 1995 to approximately 195,000 at the end of December
1996.6

To ensure a smooth transition for the many public servants who would be affected
by Program Review, the government introduced two temporary downsizing assistance
packages:

The Early Retirement Incentive was a three-year program for indeterminate
employees (i.e., “permanent” employees) who were declared surplus from any federal
department for whom Treasury Board was the employer (i.e., excluding military
personnel and RCMP members). Those who took early retirement within 60 days of
being declared surplus would not have their pension reduced as a result of their
early retiring age.

The Early Departure Incentive was a three-year program for indeterminate employees
who were declared surplus from the departments most affected by Program Review.
These employees would receive a cash payment based on salary, age, years of service
and pension eligibility if they resigned from the public service.

As a result of these incentive programs, large staff reductions were accomplished
with few involuntary layoffs from the public service.

3 Hiring Freeze – 2003

In December 2003, former prime minister Paul Martin announced a hiring freeze
for the public service as a means to control costs. In addition to a freeze on
the size of the public service, the government also placed a freeze on major
capital projects and on reclassifications (i.e., moving into a higher pay scale
without changing jobs) and established an Expenditure Review Committee.7 At
the time, the president of the Treasury Board, Reg Alcock, stressed that the
hiring freeze was necessary, as the public service was now as large as it had
been before the last major Program Review in 1993.8 This hiring freeze was in effect for two years.

4 Effects of Reductions on the Public Service

4.1 Size of the Public Service and Actual Expenditures on Personnel

Figure 1 illustrates how the size of the federal public service9 has changed since 1993. The effects of the Program Review are clear: employment in
the public service dropped sharply after 1993, reaching its smallest size in
recent history in 1998. The effect of the 2003 hiring freeze is evident in the
flattening of the curve from 2003 to 2005. From 1998 to 2003, however, the public
service grew by almost 36%, from 193,695 to 263,114 employees, bringing the size
of the workforce well above the level before Program Review.

As Figure 2 illustrates, the growth in the public service workforce was accompanied
by a growth in cost: departmental expenditures on personnel increased by almost
52% from 1998 to 2008, adjusting for inflation.

4.2 Type of Public Service Employment

Some commentators, such as the Auditor General of Canada, have cautioned that
the use of casual and term employment and professional services should be monitored
in the post–Program Review period. In 1998, the Auditor General examined expenditures
and work reductions in the public service and noted that there was a possibility
that more casual and contract workers were being hired in order to bypass restrictions
on hiring.10 However,
the data depicted in Figure 3 indicate that there was only a small increase in
the hiring of non-indeterminate employees (including casual, term and student
employees) from 1993 to 2001. In addition, the growth in the number of non-indeterminate
employees did not mirror the reduction in the number of indeterminate employees
over the same period.

Data for the fiscal years 1994–1995 to 2008–2009 indicate a different trend in expenditures on professional and special services. As Figure 4 shows, the amount spent on professional services increased sharply from 1997–1998 to 1999–2000. It was during this period that the public service was beginning to grow after the Program Review exercise.

Figure 4 – Inflation-adjusted Expenditures on Professional and Special Services: 1994–1995 to 2008–2009.
Source: Public Accounts of Canada. Data adjusted for inflation: 2002 = 100.

4.3 Demographic Changes

The age structure of the federal public service was also affected by Program
Review. The Auditor General’s 1998 report on expenditures and work force reductions
found that the public service had a higher proportion of middle-aged employees
than before Program Review, reflecting the decision by many older and more experienced
employees to accept the Early Retirement or Early Departure Incentives, along
with the departure of many younger employees.11

In a similar vein, the Clerk of the Privy Council reported that between 2003
and 2008, the number of employees 50 years of age or older increased by 4.5 percentage
points to 33.6%, while the number of employees aged 35–49 years dropped by 5.5 percentage points to 43.1%, and that recruitment efforts in 2008 pointed to a
slight increase in the number of employees aged 25–34.12

The Treasury Board Secretariat also stated that the reductions in the public
service, together with the large number of early retirements, had led to an imbalance
in the age structure of the public service.13 The
two-year hiring freeze imposed in 2003 exacerbated the demographic challenge
raised by the Program Review exercise by widening the age gap between experienced
and new employees even further. Figure 5 depicts the aging trend in the
public service from 2003 to 2008.

Age gaps in the public service can be problematic with respect to knowledge
transfer and continuity of services. For example, in 1997, about 70% of the public
service was aged 35 to 54, as compared with about 50% a decade earlier.14 In
its 2003 Annual Report, the Biological and Chemical Defence Review Committee
noted that the hiring freeze in the 1990s resulted in a smaller number of defence
scientists aged from 35 to 40 years.15

4.4 Morale in the Public Service

The effects of hiring freezes and cutbacks on the public service can be felt
long after their implementation. The morale of public servants decreased significantly
throughout the 1990s.16 Public
servants reported being more stressed and less satisfied after years of cutbacks
and coping with limited career opportunities. According to Jonathan Malloy, “the
legacy of cuts and diminished expectations has left enormous scars on the public
service.”17 Cutbacks
in the public service can undermine the appeal of government jobs. For this reason,
Malloy argues, government positions may represent little more than “specific
opportunities to gain particular skills and experiences rather than a broad commitment
to public service.”18

The Treasury Board Secretariat’s report on labour relations within the government
sector noted a number of major problems, including excessive workloads and inadequate
training budgets for employees who were hired after Program Review. The 1999
Public Service Employee Survey found that more federal employees were working
longer hours and with a higher workload than ever before. Approximately half
of public service employees considered their workload unreasonable, and 35% felt
they could not claim overtime for the additional hours they worked.19 Other
problems identified in the Public Service Survey included the slow staffing process,
low morale, and a lack of accountability. The survey indicated that only one-third
of public service employees are committed to remaining with the federal government,
and that three-quarters have thought about leaving.

The poor morale in the public service was discussed by the Clerk of the Privy
Council in the Fourth Annual Report to the Prime Minister on the Public Service,
published in February 1997. The Clerk noted that a decade of downsizing had led
to a “quiet crisis” in the public service.20 The
crisis was characterized by “diminished morale, job satisfaction and levels of
motivation among current public servants, increased levels of defection among
groups with key technical and managerial skills, and growing concerns about the
capacity of the public service to attract and retain people with the skill sets
that would be needed in the future.”21

To respond to the crisis brought on by the Program Review, the Fourth
Annual Report launched a series of public service human resources initiatives
under the title “La Relève”. La Relève was intended to address two issues:
poor morale within the public service, and the capacity of the public service
to attract and retain people with the necessary skills for the work required
by the federal government.

5 Lessons Learned from the Program Review

Beyond the existence of a deficit, there are no strong parallels between Canada’s
financial circumstances in the 1990s and the situation today. The 1990s marked
the end of a long series of deficits that pushed the country’s debt-to-GDP ratio
to 71%. By contrast, the debt-to-GDP ratio in 2009 was 34%. The state of today’s
economy is much more robust: Canada has climbed out of the global recession and
is creating jobs. However, this recovery contributed in large measure to a $53.8
billion deficit. Among its first steps to address the deficit, the government
has proposed freezing departmental operating budgets. Doing so could quite possibly
lead to future reductions in the public service.

Certain lessons from the Program Review exercise of the 1990s may have relevance
if the government reduces the size of the public service.

Early retirement incentives worked. The 1998 audit by the Office of the Auditor
General found evidence that incentive programs minimized involuntary layoffs
during the Program Review period. If more reductions are to occur in the future,
the government may wish to examine the possibility of implementing early retirement
incentive programs again.

Reductions in the public service should be coupled with robust human resources
planning. The Program Review of the 1990s led to a dissatisfied and demoralized
public service. A vacuum in human resources planning led to age gaps in professional
job categories and to an aging senior management cadre. Given the anticipated
increase in the retirement rate among public servants over the next several years,
effective human resources planning will help to minimize the effects of any workforce
reduction on the morale of the public service.

The quality of federal program delivery arguably suffered in the 1990s.22 In
addition, following the Program Review exercise, the workload for the public
servants who remained had increased, in some cases, to unmanageable levels. The
Program Review exercise led to, among other things, the downloading of services
to provinces and the reduction in the size of the Canadian forces. In any future
reduction in the size of the public service, the government should be mindful
of the level of service it wishes to provide to Canadians.

6 Conclusion

Program Review was generally seen as a success. The government was able to
achieve the significant expenditure reductions it estimated were required,23 and
considerable rethinking and realignment of government programs helped to ensure
the greater relevance and affordability of programs and to enable work force
adjustments without major work disruptions. According to Peter Aucoin and Donald
Savoie, “a world class professional public service emerged” from the Program
Review experience.24 Program Review also showed that the government can revamp its expenditure budget and
reduce spending without resorting to wide, across-the-board cuts.

According to Budget 2010, the government plans to eliminate the deficit by
restraining growth in federal spending and by reviewing government administrative
functions and overhead costs and will not raise taxes or cut transfers to persons
or other levels of government.25 Given
the freeze on departmental operating budgets at the 2010–2011 level, it is likely
that the size of the public service will be reduced. The experience gained through
the Program Review of the 1990s can help to inform current approaches to public
service reductions.

Notes

† Library of Parliament Background Papers provide in-depth studies of policy issues. They feature historical background, current information and references, and many anticipate the emergence of the issues they examine. They are prepared by the Parliamentary Information and Research Service, which carries out research for and provides information and analysis to parliamentarians and Senate and House of Commons committees and parliamentary associations in an objective, impartial manner.[ Return to text ]

Analysis based on data from
the Treasury Board of Canada Secretariat. See Figure 1. [ Return to text ]

The fiscal situation prompted
a Wall Street Journal editorial that warned Canada could become an honorary
Third World country that would require intervention from the International Monetary
Fund. See “Bankrupt Canada,” Wall Street Journal, 12 January 1995, p.
A14. [ Return to text ]

Statutory spending is authorized
by Parliament through enabling legislation. Non-statutory spending does not stem from legislation. [ Return to text ]

According to the Clerk of the Privy Council, who is the head of the federal public service, the public service is composed of the core public administration (those departments and agencies for whom Treasury Board is the employer; these are listed in Schedules I and IV of the Financial Administration Act) and separate employers (principally the Canada Revenue Agency, the Parks Canada Agency, the Canadian Food Inspection Agency, and the National Research Council of Canada; these are listed in Schedule V of the Financial Administration Act).Employees of Crown corporations and members of the Canadian Forces are not considered to be part of the public service. See: Privy Council Office, Sixteenth Annual Report to the Prime Minister on the Public Service of Canada, For the year ending March 31, 2009. [ Return to text ]